Conference of State Bank Supervisors v. Office of the Comptroller of the Currency ( 2018 )


Menu:
  •                              UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF COLUMBIA
    CONFERENCE OF STATE BANK
    SUPERVISORS,
    Plaintiff,
    v.                                                Civil Action No. 17-0763 (DLF)
    OFFICE OF THE COMPTROLLER OF
    THE CURRENCY, et al.,
    Defendants.
    MEMORANDUM OPINION
    Before the Court is the Defendants’ Motion to Dismiss. Dkt. 9. For the reasons that
    follow, the Court will grant the motion.
    I. BACKGROUND
    In this action, the Conference of State Bank Supervisors (CSBS) challenges the purported
    Nonbank Charter Decision of the Office of the Comptroller of the Currency and the Comptroller1
    (collectively, the OCC). CSBS is a nationwide organization of state banking and financial
    services regulators from all fifty U.S. states, the District of Columbia, Guam, Puerto Rico, the
    U.S. Virgin Islands, and American Samoa. Compl. ¶ 13, Dkt. 1. The OCC is a bureau of the
    U.S. Department of the Treasury and functions as the primary supervisor of banks with national
    charters. 
    Id. ¶ 16;
    see also 12 U.S.C. §§ 1, 26–27 (establishing the OCC and empowering it to
    grant national bank charters to entities that carry on “the business of banking”).
    1
    This case was originally brought against Thomas J. Curry in his official capacity as
    Comptroller of the Currency. When the current Comptroller, Joseph M. Otting, was sworn in on
    November 27, 2017, Otting was automatically substituted as a defendant pursuant to Rule 25(d)
    of the Federal Rules of Civil Procedure.
    Financial regulation in the United States is shared between federal and state governments.
    Compl. ¶ 27. As a general matter, a bank may choose to pursue a state or national charter, and
    the bank will then be regulated primarily by the corresponding authority. 
    Id. ¶ 21.
    Through the
    challenged Nonbank Charter Decision, the OCC allegedly decided to move forward with a
    process for considering national bank charter applications from companies that provide bank-like
    services but do not accept deposits, which have historically been regulated by the states. See 
    id. ¶¶ 1,
    3, 5, 26. Such firms have experienced “explosive growth” in recent years. 
    Id. ¶ 4.
    Many
    of them are financial technology companies, or Fintechs, that provide technology-driven
    financial services. 
    Id. ¶¶ 2–4.
    For example, a Fintech might develop new ways to provide
    traditional services like payment processing, or a Fintech might develop cutting-edge services
    like crowd funding and digital currencies. 
    Id. ¶ 2.
    The OCC estimates that there are now more
    than 4,000 Fintechs in the United States and the United Kingdom, fueled by worldwide
    investment that has increased from $1.8 billion to $24 billion in the last five years. 
    Id. ¶ 4.
    The National Bank Act governs any decision to grant national bank charters to Fintechs
    or other firms that do not accept deposits. Under the Act, “the Comptroller shall examine into
    the condition” of charter applicants and determine whether each applicant’s condition “entitle[s]
    it to engage in the business of banking.” 12 U.S.C. § 26. If a charter applicant “is lawfully
    entitled to commence the business of banking,” the OCC shall issue a national charter. 
    Id. § 27.
    Also, the OCC is authorized to prescribe rules and regulations to carry out its chartering
    responsibilities. 
    Id. § 93a.
    National charters apply a uniform set of requirements to national
    charter recipients and exempt recipients from uneven state regulatory landscapes. Compl. ¶ 23.
    Historically, the OCC has granted national charters only to banks that receive deposits or other
    special purpose banks specifically authorized by statute. See 12 U.S.C. § 27; 12 U.S.C.
    2
    § 1841(c)(2)(D), (F) (authorizing trust banks, banker’s banks, and credit card banks); Compl.
    ¶¶ 38–46. Indeed, CSBS does not allege that a single national charter has been granted to an
    entity that does not receive deposits, and the OCC confirms the same. See Defs.’ Mem. at 14,
    Dkt. 9-2.
    In 2003, the OCC promulgated a rule interpreting its chartering authority to include the
    power to charter a special purpose bank that limits its activities to “any . . . activities within the
    business of banking,” provided that the special purpose bank conducts “at least one of the
    following three core banking functions: Receiving deposits; paying checks; or lending money.”
    12 C.F.R. § 5.20(e)(1); see Rules, Policies, and Procedures for Corporate Activities; Bank
    Activities and Operations; Real Estate Lending and Appraisals, 68 Fed. Reg. 70122 (Dec. 17,
    2003); Compl. ¶ 55. Under the rule, the OCC could charter a special purpose bank that does not
    receive deposits, so long as the bank pays checks or lends money. That may open the door
    (assuming other requirements are met) for a Fintech that does not accept deposits to acquire a
    national charter.
    That particular aspect of the 2003 rule lay dormant for more than a decade. But in March
    2016, the OCC announced through a white paper that it had begun to study the regulatory
    impacts of innovations in financial technology. Compl. ¶ 47 (citing Office of the Comptroller of
    the Currency, Supporting Responsible Innovation in the Federal Banking System: An OCC
    Perspective (Mar. 2016), www.occ.gov/publications/publications-by-type/other-publications-
    reports/pub-responsible-innovation-banking-system-occ-perspective.pdf). In a December 2016
    speech, then-Comptroller Curry said that “the OCC will move forward with chartering financial
    technology companies that offer bank products and services and meet our high standards and
    chartering requirements.” Thomas J. Curry, Special Purpose National Bank Charters for Fintech
    3
    Companies (Dec. 2, 2016), Dkt. 1-2 at 4 (emphasis in remarks as published on the OCC’s
    website). According to Curry, “I have asked staff to develop and implement a formal agency
    policy for evaluating applications for fintech charters. The policy, informed by the comments we
    receive on our [forthcoming] white paper, will articulate specific criteria for approval as well as
    issues that we should consider and conditions that should be met before granting such charters.”
    
    Id. at 6.
    Soon after, the OCC published a white paper that outlined general “baseline” supervisory
    requirements for charter holders. Office of the Comptroller of the Currency, Exploring Special
    Purpose National Bank Charters for Fintech Companies (Dec. 2016), Dkt. 1-3; see also Compl.
    ¶ 56–57. This white paper solicited public feedback, and many parties registered objections.
    Compl. ¶¶ 58–66. CSBS itself raised a variety of concerns relating to the lawfulness and
    wisdom of granting national charters to Fintechs. Letter from CSBS to Comptroller Curry (Jan.
    13, 2017), Dkt. 1-4; see also Compl. ¶ 65. The OCC published a response to these concerns on
    March 15, 2017. Office of the Comptroller of the Currency, OCC Summary of Comments and
    Explanatory Statement: Special Purpose National Bank Charters for Financial Technology
    Companies (2017), Dkt. 1-6.
    On the same day, the OCC published a draft supplement to the Comptroller’s Licensing
    Manual. See Office of the Comptroller of the Currency, Evaluating Charter Applications from
    Financial Technology Companies (Mar. 2017), Dkt 1-5; see also Compl. ¶ 67. The draft
    supplement pointed to 12 C.F.R. § 5.20(e)(1) to suggest that Fintechs that do not take deposits
    eventually may be allowed to apply for national charters if the OCC finalizes the language in the
    draft. Compl. ¶¶ 67–68. In addition, the draft supplement invited public feedback. 
    Id. ¶ 74.
    Many parties again registered concerns and objections. 
    Id. ¶¶ 74–75.
    4
    The OCC did not respond to these concerns and did not change the draft status of the
    supplement between March 15 and April 26, 2017, see 
    id. ¶ 76,
    on which date CSBS filed this
    challenge to the OCC’s purported decision to move forward with chartering national banks that
    do not accept deposits, i.e., the Nonbank Charter Decision, see 
    id. at 31,
    ¶ 12. CSBS asserts five
    claims: (1) the OCC does not have statutory authority for the Nonbank Charter Decision; (2) the
    OCC does not have statutory authority for a corresponding regulation; (3) the Nonbank Charter
    Decision failed to follow the appropriate rulemaking procedures; (4) the Nonbank Charter
    Decision was arbitrary and capricious; and (5) the Nonbank Charter Decision violated the Tenth
    Amendment. See 
    id. ¶¶ 99–121.
    Since CSBS filed its complaint, a number of developments have occurred. The OCC has
    undergone two leadership changes along with the changing presidential administrations, so Curry
    is no longer Comptroller: he was succeeded in May 2017 by Acting Comptroller Keith A.
    Noreika, who was then succeeded by the current Senate-confirmed Comptroller Joseph M.
    Otting. The OCC’s new leadership suggested that, even if a Fintech attempted to apply, the
    OCC may not accept the application. In July 2017, for example, Acting Comptroller Noreika
    stated:
    [A]t this point the OCC has not determined whether it will actually accept or act
    upon applications from nondepository fintech companies for special purpose
    national bank charters that rely upon [12 C.F.R. 5.20(e)(1)]. And, to be clear, we
    have not received, nor are we evaluating, any such applications from nondepository
    fintech companies. The OCC will continue to hold discussions with interested
    companies while we evaluate our options. These meetings have been very
    informative and provide insight into the financial landscape and the companies
    providing traditional banking services as they continue to evolve.
    Keith A. Noreika, Public Remarks before the Exchequer Club (July 19, 2017), Dkt. 9-3 at 10.
    Also in the time since the complaint was filed, a similar lawsuit was filed against the OCC in the
    Southern District of New York by Maria Vullo, Superintendent of the New York State
    5
    Department of Financial Services. Vullo v. OCC, No. 17-cv-3574, 
    2017 WL 6512245
    (S.D.N.Y.
    Dec. 12, 2017). The Southern District recently dismissed that case, concluding that the plaintiff
    lacked standing and that the dispute was not ripe. 
    Id. at *8–10.
    The OCC now moves to dismiss this action under Rules 12(b)(1) and 12(b)(6) of the
    Federal Rules of Civil Procedure. Dkt. 9.
    II. LEGAL STANDARD
    The U.S. Constitution limits the federal courts to deciding cases or controversies, U.S.
    Const. art. III, § 2, and it is “presumed that a cause lies outside this limited jurisdiction,”
    Kokkonen v. Guardian Life Ins. Co., 
    511 U.S. 375
    , 377 (1994); Attias v. Carefirst, Inc., 
    865 F.3d 620
    , 625 (D.C. Cir. 2017). To present a justiciable case or controversy, the party invoking
    federal jurisdiction must demonstrate standing and ripeness, among other requirements.
    
    Kokkonen, 511 U.S. at 377
    ; Lujan v. Defs. of Wildlife, 
    504 U.S. 555
    , 561 (1992); Pub. Citizen,
    Inc. v. NHTSA, 
    489 F.3d 1279
    , 1289 (D.C. Cir. 2007).
    A motion to dismiss for lack of standing proceeds under Rule 12(b)(1) because “the
    defect of standing is a defect in subject matter jurisdiction.” Haase v. Sessions, 
    835 F.2d 902
    ,
    906 (D.C. Cir. 1987). Similarly, motions to dismiss on ripeness grounds consistently proceed
    under Rule 12(b)(1) because “[t]he question of ripeness goes to . . . subject matter jurisdiction.”
    Exxon Mobil Corp. v. FERC, 
    501 F.3d 204
    , 207 (D.C. Cir. 2007) (quoting Duke City Lumber Co.
    v. Butz, 
    539 F.2d 220
    , 221 n.2 (D.C. Cir. 1976)); see also Venetian Casino Resort, LLC v. EEOC,
    
    409 F.3d 359
    , 366 (D.C. Cir. 2005); Beach TV Props., Inc. v. Solomon, 
    254 F. Supp. 3d 118
    , 131
    (D.D.C. 2017); Matthew A. Goldstein, PLLC v. U.S. Dep’t of State, 
    153 F. Supp. 3d 319
    , 330
    6
    (D.D.C. 2016), aff’d, 
    851 F.3d 1
    (D.C. Cir. 2017); Belmont Abbey Coll. v. Sebelius, 
    878 F. Supp. 2d
    25, 32 (D.D.C. 2012).2
    When evaluating a Rule 12(b)(1) motion, “the court must treat the plaintiff’s factual
    allegations as true and afford the plaintiff the benefit of all inferences that can be derived from
    the facts alleged.” Jeong Seon Han v. Lynch, 
    223 F. Supp. 3d 95
    , 103 (D.D.C. 2016) (quotation
    marks and citation omitted). The court, however, “must scrutinize the plaintiff’s allegations
    more closely when considering a motion to dismiss pursuant to Rule 12(b)(1) than it would
    under a motion to dismiss pursuant to Rule 12(b)(6).” Schmidt v. U.S. Capitol Police Bd., 826 F.
    Supp. 2d 59, 65 (D.D.C. 2011). Also, unlike the Rule 12(b)(6) context, a court may consider
    documents outside the pleadings to evaluate whether it has jurisdiction; for example, the court
    may consider the complaint supplemented by undisputed facts evidenced by the record. See
    Jerome Stevens Pharm., Inc. v. FDA, 
    402 F.3d 1249
    , 1253 (D.C. Cir. 2005); Venetian 
    Casino, 409 F.3d at 366
    ; Herbert v. Nat’l Acad. of Scis., 
    974 F.2d 192
    , 197 (D.C. Cir. 1992). If the court
    determines that it lacks jurisdiction, the court must dismiss the action. U.S. Const. art. III, § 2;
    Fed. R. Civ. P. 12(b)(1), 12(h)(3).
    2
    It is true that “not every justiciability concern is one of subject matter jurisdiction” and “the
    D.C. Circuit recently clarified that certain justiciability questions are governed by Rule 12(b)(6),
    rather than Rule 12(b)(1), while at the same time acknowledging that it ‘has not always been
    consistent in maintaining’ the ‘distinction between a claim that is not justiciable and a claim over
    which the court lacks subject matter jurisdiction.’” 
    Goldstein, 153 F. Supp. 3d at 331
    n.9
    (alterations omitted) (quoting Sierra Club v. Jackson, 
    648 F.3d 848
    , 853 (D.C. Cir. 2011)).
    Therefore, even though numerous ripeness cases proceed under Rule 12(b)(1), it is possible that
    a motion to dismiss a claim that is prudentially unripe, but not constitutionally unripe, should
    proceed under Rule 12(b)(6). See id.; Horne v. U.S. Dep’t of Agric., 
    569 U.S. 513
    , 526 (2013)
    (noting that prudential ripeness “is not, strictly speaking, jurisdictional”). Regardless, the Court
    need not resolve the issue at this time because the defendants moved to dismiss under both rules,
    see Dkt. 9, and an analysis under Rule 12(b)(6) would not change the Court’s ripeness
    conclusion.
    7
    III. ANALYSIS
    A.      Standing
    The doctrine of standing limits federal courts to “the traditional role of Anglo-American
    courts, which is to redress or prevent actual or imminently threatened injury to persons caused by
    private or official violation of law.” Summers v. Earth Island Inst., 
    555 U.S. 488
    , 492 (2009).
    To establish constitutional standing, a plaintiff must demonstrate a concrete injury-in-fact that is
    fairly traceable to the defendant’s action and capable of being redressed by a favorable judicial
    decision. 
    Id. at 493.
    Absent an actual or imminently threatened injury, the court may not “step[]
    where the Constitution forb[ids] it to tread” by addressing the merits. Hancock v. Urban
    Outfitters, Inc., 
    830 F.3d 511
    , 513 (D.C. Cir. 2016).
    An organization like CSBS “can have standing on its own behalf . . . or on behalf of its
    members.” Abigail All. for Better Access to Developmental Drugs v. Eschenbach, 
    469 F.3d 129
    ,
    132 (D.C. Cir. 2006) (internal citations omitted). The former —“organizational standing”—
    requires an organization to show that the organization itself was injured. Equal Rights Ctr. v.
    Post Properties, Inc., 
    633 F.3d 1136
    , 1138 (D.C. Cir. 2011) (internal quotations omitted). The
    latter—“associational standing”—allows an organization to sue on behalf of its members to
    protect their interests. Common Purpose USA, Inc. v. Obama, 
    227 F. Supp. 3d 21
    , 26–27
    (D.D.C. 2016).
    CSBS seeks entry into the federal courts through the latter path. To establish
    associational standing, CSBS must show that (1) “its members would otherwise have standing to
    sue in their own right”; (2) “the interests it seeks to protect are germane to the organization’s
    purpose”; and (3) “neither the claim asserted nor the relief requested requires the participation of
    individual members in the lawsuit.” United Food & Commercial Workers Union Local 751 v.
    8
    Brown Grp., 
    517 U.S. 544
    , 553 (1996) (quotation marks omitted); see Sierra Club v. EPA, 
    292 F.3d 895
    , 898 (D.C. Cir. 2002) (applying test).
    CSBS’s members do not have standing to sue in their own right. Standing’s “irreducible
    constitutional minimum” contains three requirements. Steel Co. v. Citizens for a Better Env’t,
    
    523 U.S. 83
    , 102–03 (1998). First, a plaintiff must plead an injury that is “concrete,
    particularized, and actual or imminent.” Clapper v. Amnesty Int’l USA, 
    568 U.S. 398
    , 409
    (2013). “Although imminence is concededly a somewhat elastic concept, it cannot be stretched
    beyond its purpose, which is to ensure that the alleged injury is not too speculative for Article III
    purposes.” 
    Id. (internal quotations
    omitted). “Second, there must be causation—a fairly
    traceable connection between the plaintiff’s injury and the complained-of conduct of the
    defendant.” Steel 
    Co., 523 U.S. at 103
    . “And third, there must be redressability—a likelihood
    that the requested relief will redress the alleged injury.” 
    Id. “This triad
    of injury in fact,
    causation and redressability constitutes the core of Article III’s case-or-controversy requirement,
    and the party invoking federal jurisdiction bears the burden of establishing its existence.” 
    Id. at 103–04
    (quoting 
    Lujan, 504 U.S. at 560
    ).
    The Court only needs to reach the first requirement—injury in fact—to resolve this case.
    The U.S. Supreme Court has “repeatedly reiterated that threatened injury must be certainly
    impending to constitute injury in fact, and that allegations of possible future injury are not
    sufficient.” 
    Clapper, 568 U.S. at 409
    (internal quotation marks and citation omitted). And it has
    rejected standards that would allow for possible future injuries or future injuries with merely an
    “objectively reasonable likelihood” of occurring. 
    Id. (rejecting Second
    Circuit test using that
    language). In a limited set of cases, the U.S. Supreme Court has “found standing based on a
    ‘substantial risk’ that the harm will occur, which may prompt plaintiffs to reasonably incur costs
    9
    to mitigate or avoid that harm.” 
    Clapper, 568 U.S. at 414
    n.5; see Susan B. Anthony List v.
    Driehaus, 
    134 S. Ct. 2334
    , 2341 (2014). The “substantial risk” test does not replace the
    “certainly impending” test, but rather provides an alternate standard that looks for costs incurred
    “to mitigate or avoid that harm.” 
    Clapper, 568 U.S. at 414
    n.5; see 
    Attias, 865 F.3d at 625
    –27.
    Although the two tests may involve similar inquires, they remain separate tests. See 
    Attias, 865 F.3d at 626
    –27; 
    id. at 627
    (“Under our precedent, the proper way to analyze an increased-risk-of-
    harm claim is to consider the ultimate alleged harm . . . as the concrete and particularized injury
    and then to determine whether the increased risk of such harm makes injury to an individual
    citizen sufficiently imminent for standing purposes.” (internal quotation marks omitted)). Under
    either standard, “standing is ‘substantially more difficult to establish’ where the parties invoking
    federal jurisdiction are not ‘the object of the government action or inaction’ they challenge.”
    Pub. Citizen, 
    Inc., 489 F.3d at 1289
    –90 (quoting 
    Lujan, 504 U.S. at 562
    ).
    CSBS fails to plead an injury that is “certainly impending” or that exposes its members to
    a “substantial risk.” The complaint identifies several potential injuries:
    •   “The Nonbank Charter Decision triggers significant risks to traditional areas of
    state concern . . . .” Compl. ¶ 92.
    •   “The Nonbank Charter Decision threatens to disrupt this system” of dual bank
    enforcement.” 
    Id. ¶ 93.
    •   “[C]ompanies facing or at risk of state enforcement actions could escape state
    enforcement authority by obtaining a national charter.” 
    Id. ¶ 94.
    •   “[T]he OCC’s actions impede the states’ ability to continue their existing
    regulation of financial services companies within their borders . . . . This also
    creates difficulties for the states in detecting unlicensed activity within their
    borders.” 
    Id. 10 •
      “[O]ne reason that nonbank companies may seek a special purpose national
    charter from the OCC would be to avoid compliance with existing state laws.”
    
    Id. ¶ 95.
    •   The decision “threatens to preempt state sovereign interests.” 
    Id. ¶ 96.
    This list is filled with speculative and conclusive language like “significant risks”; “threatens to
    disrupt”; “could escape”; and “may seek.” The Court accepts as true the complaint’s factual
    assertions, including that the OCC’s chartering of a Fintech would diminish a state’s “ability to
    continue [its] existing regulation” and will make it marginally more difficult to detect
    “unlicensed activity.” And regulatory interference with a state is indeed a concrete and
    particularized injury. See Alaska v. U.S. Dep’t of Transp., 
    868 F.2d 441
    (D.C. Cir. 1989).
    But each of those harms is contingent on whether the OCC charters a Fintech. As the
    Southern District of New York explained when reaching the same conclusion with respect to
    similar alleged harms, “none of [the] alleged injuries will actually occur if the OCC never . . .
    [charters] a [F]intech.” Vullo, 
    2017 WL 6512245
    , at *7–8. Several contingent and speculative
    events must occur before the OCC charters a Fintech: (1) the OCC must decide to finalize a
    procedure for handling those applications; (2) a Fintech company must choose to apply for a
    charter; (3) the particular Fintech must substantively satisfy regulatory requirements; and (4) the
    OCC must decide to grant the charter to the particular Fintech. When the complaint was filed,
    not even the first step—finalized procedures—had occurred. See Wheaton Coll. v. Sebelius, 
    703 F.3d 551
    , 552 (D.C. Cir. 2012) (“[S]tanding is assessed at the time of filing.”). The draft
    supplement was a draft “issue[d] for public comment” and it “explain[ed] how the OCC would
    evaluate applications from fintech companies” in an “envisioned application process.” Office of
    the Comptroller of the Currency, Summary of Comments and Explanatory Statement: Special
    Purpose National Bank Charters for Financial Technology Companies (Mar. 2017), Dkt. 1-6 at
    11
    3–4, 17 (emphasis added). And the second step—a Fintech’s electing to apply—had not
    occurred, let alone the third or fourth. In fact, an aspiring Fintech that does not accept deposits
    plausibly could have attempted to apply for a charter anytime since the 2003 regulations took
    effect. And yet in the almost fifteen years between those regulations and the complaint, the OCC
    posits—and CSBS does not plead otherwise—that not one Fintech of the type described by the
    complaint has attempted to apply for a national charter. See Defs.’ Mem. at 14.
    This chain of speculative events that must take place before a CSBS member is injured
    fails to clear the bar posed by either the “certainly impending” test or the “substantial risk” test.
    The possibility of future injury is too attenuated and uncertain to be “certainly impending.” And
    CSBS does not allege in more than a conclusory fashion that its members suffer an injury from a
    “substantial risk” of harm, and CSBS certainly does not allege that any such risk “may prompt
    [its members] to reasonably incur costs to mitigate or avoid that harm.” 
    Clapper, 568 U.S. at 414
    n.5. Indeed, CSBS does not point to any expenditures or any other efforts taken by a
    member state to mitigate or avoid the alleged harm. See Compl. ¶¶ 92–96. Furthermore, the
    present case is unlike the U.S. Supreme Court’s recent application of the “substantial risk” test in
    Susan B. Anthony List, 
    134 S. Ct. 2334
    . That case dealt with pre-enforcement review of a state
    statute prohibiting false statements during elections, not speculative infringement upon state
    regulations. 
    Id. at 2347.
    Moreover, the injury in that case was much less attenuated; the Court
    noted that the applicable commission likely “handle[d] about 20 to 80 false statement complaints
    per year.” 
    Id. at 2345
    (quotation marks omitted). If the OCC had received 20 to 80 Fintech
    charter applications, then CSBS would have a much stronger argument for standing. But not a
    single Fintech has ever applied for a charter. Because it is not “certainly impending” that this
    12
    chain of events will take place and the present situation does not expose CSBS to a “substantial
    risk” of harm, CSBS fails to establish injury in fact.
    To resist this conclusion, CSBS seeks refuge in several cases that allow states to show
    regulatory injuries. Pl.’s Opp’n at 21–24, Dkt. 14. Ultimately, this effort is not persuasive
    because it cannot cure CSBS’s lack of an imminent injury. CSBS argues that a state may sue the
    federal government when it alleges “a judicially cognizable interest in the preservation of its own
    sovereignty, and a diminishment of that sovereignty by the alleged [federal] interference.”
    Bowen v. Pub. Agencies Opposed to Soc. Sec. Entrapment, 
    477 U.S. 41
    , 51 n.17 (1986) (internal
    quotations marks omitted). Indeed, the D.C. Circuit has allowed states to challenge the
    “preemptive effect” of federal law. 
    Alaska, 868 F.2d at 443
    n.1, 444. Other circuits have
    reached similar conclusions. See Texas v. EEOC, 
    827 F.3d 372
    , 378, 379 (5th Cir. 2016),
    withdrawn on other grounds, 
    838 F.3d 511
    (5th Cir. 2016); Wyoming ex rel. Crank v. United
    States, 
    539 F.3d 1236
    (10th Cir. 2008); Ohio ex rel. Celebrezze v. U.S. Dep’t of Transp., 
    766 F.2d 228
    (6th Cir. 1985).
    Unlike the state in Alaska, however, CSBS does not allege federal preemption. That is,
    CSBS does not assert that any state law has been preempted by the OCC’s preliminary activities
    respecting Fintech charters. CSBS also does not allege that any Fintech can freely ignore state
    law because of the OCC’s statements. Nor does it argue that any particular state will face
    increased regulatory costs and is an object of the regulatory action. See 
    Texas, 827 F.3d at 378
    –
    80 (allowing Texas to challenge EPA guidance because Texas was an object of the guidance and
    was forced to incur significant costs or change its policies). Finally, there is no direct conflict
    between federal and state laws as in Wyoming. See 
    539 F.3d 1236
    (10th Cir. 2008) (challenging
    13
    interpretation of federal law that Wyoming residents could be prosecuted for gun ownership after
    they had used a state process to expunge their state criminal records).
    The OCC’s national bank chartering program does not conflict with state law until a
    charter has been issued. The Court thus agrees with the Southern District of New York that
    “[a]ny allegation of preemption at this point relies on speculation about the OCC’s future
    actions.” Vullo, 
    2017 WL 6512245
    , at *7–8. There is no doubt that if the OCC were to charter a
    Fintech, then that national charter would preempt conflicting state laws—even the OCC
    concedes as much. Defs.’ Reply, at 14, Dkt. 15. At that point, the impacted state surely may
    allege an injury in fact. 
    Alaska, 868 F.2d at 443
    n.1, 444. But no such charter has been issued.
    And, as above, CSBS has failed to allege that the OCC will issue a charter imminently or that the
    OCC’s preliminary activities expose its members to a substantial risk of harm.
    Nor does the “special solicitude” afforded to states confer standing on CSBS. See
    Massachusetts v. EPA, 
    549 U.S. 497
    , 518–20 (2007). In Massachusetts, the U.S. Supreme Court
    took pains to identify an injury in fact: environmental changes had “already inflicted significant
    harms,” including “rising seas” that “ha[d] already begun to swallow Massachusetts’ coastal
    land” and harmed the state as a landowner. 
    Id. at 521–22.
    Indeed, the “special solicitude
    [described in Massachusetts v. EPA] does not eliminate the state petitioner’s obligation to
    establish a concrete injury, as [the Court’s] opinion amply indicates.” Del. Dep’t of Natural Res.
    & Envtl. Control v. FERC, 
    558 F.3d 575
    , 579 n.6 (D.C. Cir. 2009). Massachusetts had already
    suffered an injury, but CSBS’s members have not.
    Even if the OCC were sufficiently likely to issue a charter to some particular Fintech, the
    complaint would remain inadequate for another reason. CSBS raises standing on behalf of its
    members. To do so, CSBS must plead an imminent injury to some particular member.
    14
    
    Summers, 555 U.S. at 499
    . “In part because of the difficulty of verifying the facts upon which
    such probabilistic standing depends,” a plaintiff organization must “identify members who have
    suffered the requisite harm—surely not a difficult task here, when so many . . . are alleged to
    have been harmed.” 
    Summers, 555 U.S. at 499
    (emphasis added). “When a petitioner claims
    associational standing, it is not enough to aver that unidentified members have been injured.
    Rather the petitioner must specifically ‘identify members who have suffered the requisite
    harm.’” Chamber of Commerce v. EPA, 
    642 F.3d 192
    , 199 (D.C. Cir. 2011) (quoting 
    Summers, 555 U.S. at 499
    ). And at least three courts in this district have required an associational plaintiff
    to identify an injured member by name at the motion to dismiss stage. See Western Wood
    Preservers Inst. v. McHugh, 
    925 F. Supp. 2d 63
    , 69–70 (D.D.C. 2013); Californians for
    Renewable Energy v. U.S. Dep’t of Energy, 
    860 F. Supp. 2d 44
    , 48 (D.D.C. 2012); Common
    Cause v. Biden, 
    909 F. Supp. 2d 9
    , 21 n.6 (D.D.C. 2012); see also Am. Ass’n of Cosmetology
    Schs. v. Devos, 
    258 F. Supp. 3d 50
    , 66–69 (D.D.C. 2017) (describing disagreements among
    lower courts as to whether a plaintiff association must identify the injured member by name or
    identify the member to some lesser degree).
    CSBS fails to identify in its complaint which particular member of the organization has
    been harmed. Nor do any of the briefs remedy this concern. Compare Pl.’s Opp’n at 7–8 n.1,
    with Defs.’ Reply at 10 n.1. In this way, the complaint runs afoul of the baseline requirement to
    identify a particular member of the organization that was injured. As in Summers, identifying a
    particular member is “surely not a difficult task” when the harms are alleged to apply to nearly
    every member of the 
    organization. 555 U.S. at 499
    . And here the identification requirement
    serves an important gatekeeping role. It highlights the challenge of determining whether any
    particular state will be injured before a particular Fintech, if any, receives a charter. A national
    15
    charter could injure Indiana without injuring Alaska, or vice versa. As it stands, the complaint
    does not equip the Court to decide which state to consider when evaluating standing, what role
    the CSBS member has in that state’s regulatory system, or whether there are any Fintech
    companies within that state that are likely to receive a national charter. And the identification
    requirement ensures that the Court considers the likelihood of injury to individual members of
    the organization, thus preventing the organization from gaining standing by combining several
    alleged injuries that are inadequate separately.
    In conclusion, a plaintiff must demonstrate that it has standing to survive a Rule 12(b)(1)
    motion. 
    Lujan, 504 U.S. at 561
    . CSBS does not carry its burden because it fails to plead an
    injury in fact and it does not identify an injured member.
    B.      Ripeness
    In addition, this dispute is not constitutionally or prudentially ripe for determination.
    “Ripeness is a justiciability doctrine designed ‘to prevent the courts, through avoidance of
    premature adjudication, from entangling themselves in abstract disagreements over
    administrative policies, and also to protect the agencies from judicial interference until an
    administrative decision has been formalized and its effects felt in a concrete way by the
    challenging parties.’” Nat’l Park Hospitality Ass’n v. U.S. Dep’t of Interior, 
    538 U.S. 803
    , 807–
    08 (2003) (quoting Abbott Laboratories v. Gardner, 
    387 U.S. 136
    , 148–149 (1967)).
    Constitutional ripeness is “subsumed” by standing’s injury-in-fact requirement. Am. Petroleum
    Inst. v. EPA, 
    683 F.3d 382
    , 386 (D.C. Cir. 2012). This case is constitutionally unripe because the
    CSBS has not established injury in fact, as explained in Section III.A.
    This case is also prudentially unripe. As a preliminary matter, CSBS argues that the
    Court should not apply the prudential ripeness doctrine because the U.S. Supreme Court “cast
    doubt” on the doctrine in Susan B. Anthony List, 
    134 S. Ct. 2334
    . Pl.’s Opp’n at 19. The
    16
    prudential ripeness doctrine is indeed in tension with the “virtual unflagging” obligation of a
    federal court to hear cases within its jurisdiction. Lexmark Int’l, Inc. v. Static Control
    Components, Inc., 
    134 S. Ct. 1377
    , 1386 (2014). Even so, the U.S. Supreme Court applied the
    doctrine in Susan B. Anthony List and explicitly declined to decide whether prudential ripeness
    was still good 
    law. 134 S. Ct. at 2347
    . The D.C. Circuit continues to apply the prudential
    ripeness doctrine. See Perry Capital LLC v. Mnuchin, 
    864 F.3d 591
    , 632–33 (D.C. Cir. 2017).
    The prudential ripeness doctrine asks whether a federal court “should decide a case.”
    Am. Petroleum 
    Inst., 683 F.3d at 386
    (emphasis added). Even if a case is “constitutionally ripe,”
    there may also be “prudential reasons for refusing to exercise jurisdiction.” Nat’l Park
    Hospitality 
    Ass’n, 538 U.S. at 808
    ; 
    Goldstein, 153 F. Supp. 3d at 337
    (stating that prudential
    ripeness “may provide an independent basis for a court not to exercise its jurisdiction” (quotation
    marks omitted)). The prudential ripeness doctrine asks two questions: (1) whether the issues are
    fit for judicial decision; and (2) whether “withholding a decision will cause ‘hardship to the
    parties.’” Am. Petroleum 
    Inst., 683 F.3d at 387
    (quoting Abbott Labs. v. Gardner, 
    387 U.S. 136
    ,
    149 (1967)).
    The first question protects “the agency’s interest in crystallizing its policy before that
    policy is subjected to judicial review and the court’s interests in avoiding unnecessary
    adjudication and in deciding issues in a concrete setting.” Wyo. Outdoor Council v. U.S. Forest
    Serv., 
    165 F.3d 43
    , 49 (D.C. Cir. 1999) (internal quotation mark omitted). The fitness of an issue
    “depends on whether it is purely legal, whether consideration of the issue would benefit from a
    more concrete setting, and whether the agency’s action is sufficiently final.” Atl. States Legal
    Found. v. EPA, 
    325 F.3d 281
    , 284 (D.C. Cir. 2003) (internal quotation marks omitted).
    17
    This dispute would benefit from a more concrete setting and additional percolation. In
    particular, this dispute will be sharpened if the OCC charters a particular Fintech—or decides to
    do so imminently. CSBS admits that Fintechs “encompass any of a very broad array of
    technology-driven financial services providers . . . that range from start-up ventures to well-
    established conglomerates.” Compl. ¶ 2. The term can include an “almost unimaginably wide
    variety of services, from the traditional (e.g., payment processing) to the more cutting edge (e.g.,
    crowd funding and digital currencies, such as bitcoins).” 
    Id. To address
    whether the OCC can
    issue Fintech charters may require the Court to imagine the “unimaginably wide” range of
    possible Fintechs, and to draw distinctions between them. Courts are ill-equipped to
    prospectively draw lines as to which hypothetical Fintechs, if any, may be chartered. While a
    court could readily consider the legality of awarding a charter to a particular Fintech, the current
    dispute does not present that question.
    Moreover, CSBS asks the Court to review the agency’s procedures. But, as discussed in
    Section III.A, any procedures that may lead to issuing a Fintech charter have not yet been
    finalized. Based on the record before the Court, the OCC’s supplement to the chartering manual
    remains in draft form, awaiting subsequent updates. See Office of the Comptroller of the
    Currency, Evaluating Charter Applications from Financial Technology Companies (Mar. 2017),
    Dkt 1-5; see also Compl. ¶¶ 67, 76. And there are many other procedural hurdles to overcome
    before a charter could be granted. See Defs.’ Mem. at 12–13 (explaining briefly some chartering
    procedures, such as application, public comment, analysis, and a conditional approval process,
    which are set forth in 12 C.F.R. Part 5). Any procedural review at this point would be
    piecemeal, potentially involving a new legal challenge every time the OCC takes a step towards
    a result disfavored by a trade organization. In light of the recent leadership changes at the OCC,
    18
    it is particularly speculative to guess whether the OCC will continue down paths considered by a
    previous Comptroller. The OCC may pursue similar ends through different regulatory means, or
    the OCC may choose not to move forward with a national charter program for Fintechs. Indeed,
    then-Acting Comptroller Noreika stated in July 2017 that “the OCC has not determined whether
    it will actually accept or act upon applications from nondepository fintech companies” and the
    OCC “will continue to hold discussions with interested companies while we evaluate our
    options.” Keith A. Noreika, Public Remarks before the Exchequer Club (July 19, 2017), Dkt. 9-
    3 at 10; see also Wheaton 
    Coll., 703 F.3d at 552
    (assessing ripeness based in part on events that
    occurred after the filing of the complaint). As a result, the agency’s actions are not yet
    sufficiently settled to be fit for review.
    In addition, while purely legal issues are “presumptively reviewable,” even “purely legal
    issues may be unfit for review.” Nat’l Ass’n of Home Builders v. U.S. Army Corps of Eng’rs,
    
    417 F.3d 1272
    , 1282 (D.C. Cir. 2005) (quotation omitted). This dispute presents legal issues that
    are unfit for review. In particular, the dispute involves the interpretation of statutes entrusted to
    the OCC, and both parties brief the issue of Chevron deference. And for that reason “[i]t is more
    consistent with the conservation of judicial resources to make that deference-bound review after
    the agency has finalized its application of the relevant statutory text.” Am. Petroleum 
    Inst., 683 F.3d at 389
    (emphasis added). If the OCC elects to adopt and apply a regulatory scheme to a
    particular Fintech charter, then the agency action will become sufficiently settled and courts will
    have a more concrete setting to resolve the legal disputes. In these ways, the dispute is not yet fit
    for judicial decision. See Am. Petroleum 
    Inst., 683 F.3d at 387
    .
    The second question asked by the prudential ripeness doctrine is whether withholding a
    decision will cause hardship to the parties. See 
    id. While the
    D.C. Circuit “has frequently
    19
    suggested that hardship is not a sine qua non of ripeness,” Teva Pharms. USA, Inc. v. Sebelius,
    
    595 F.3d 1303
    , 1310 (D.C. Cir. 2010) (collecting cases), it remains a consideration. The
    “institutional interests in the deferral of review” are outweighed when the hardship caused by
    deferral would be “immediate and significant.” Am. Petroleum 
    Inst., 683 F.3d at 389
    . CSBS
    makes no attempt to offer a reason why delay would cause it hardship, let alone that any hardship
    would be “immediate and significant.” 
    Id. Instead, CSBS
    argues that it need not provide any
    reasons. See Pl.’s Opp’n at 20–21 (“[A]bsent institutional interests favoring postponement of
    review, a petitioner need not show that delay would impose individual hardship to show
    ripeness.” (quoting Sabre, Inc. v. U.S. Dep’t of Transp., 
    429 F.3d 1113
    , 119–20 (D.C. Cir.
    2005)). This argument is not persuasive when considered against the hardship to the OCC if
    each minor step towards a potential agency policy were litigated one-by-one as the policy
    becomes more settled.
    For these reasons, the prudential ripeness doctrine counsels in favor of allowing time to
    sharpen this dispute before deciding it. Indeed, there may ultimately be no case to decide at all if
    the OCC does not charter a Fintech. Therefore, even if CSBS had successfully alleged an injury
    in fact, this case is prudentially unripe. See Vullo, 
    2017 WL 6512245
    , at *8–10 (reaching same
    conclusion under similar Second Circuit precedent).
    CONCLUSION
    For the foregoing reasons, the Court grants the Defendants’ Motion to Dismiss. Dkt. 9.
    A separate order consistent with this decision accompanies this memorandum opinion.
    ________________________
    DABNEY L. FRIEDRICH
    United States District Judge
    Date: April 30, 2018
    20
    

Document Info

Docket Number: Civil Action No. 2017-0763

Judges: Judge Dabney L. Friedrich

Filed Date: 4/30/2018

Precedential Status: Precedential

Modified Date: 5/1/2018

Authorities (26)

Edward Haase v. William S. Sessions, Director, F.B.I. , 835 F.2d 902 ( 1987 )

Lexmark Int'l, Inc. v. Static Control Components, Inc. , 134 S. Ct. 1377 ( 2014 )

Atl St Leg Fdn Inc v. EPA , 325 F.3d 281 ( 2003 )

National Park Hospitality Association v. Department of the ... , 123 S. Ct. 2026 ( 2003 )

Massachusetts v. Environmental Protection Agency , 127 S. Ct. 1438 ( 2007 )

Kokkonen v. Guardian Life Insurance Co. of America , 114 S. Ct. 1673 ( 1994 )

Victor Herbert v. National Academy of Sciences , 974 F.2d 192 ( 1992 )

Steel Co. v. Citizens for a Better Environment , 118 S. Ct. 1003 ( 1998 )

Sierra Club v. Environmental Protection Agency , 292 F.3d 895 ( 2002 )

Susan B. Anthony List v. Driehaus , 134 S. Ct. 2334 ( 2014 )

Lujan v. Defenders of Wildlife , 112 S. Ct. 2130 ( 1992 )

Wyoming Ex Rel. Crank v. United States , 539 F.3d 1236 ( 2008 )

Exxon Mobil Corp. v. FEDERAL ENERGY REGULATORY COMMISSION , 501 F.3d 204 ( 2007 )

Venetian Casino Resort, L.L.C. v. Equal Employment ... , 409 F.3d 359 ( 2005 )

Duke City Lumber Company v. Earl Butz, Secretary of ... , 539 F.2d 220 ( 1976 )

the-state-of-ohio-ex-rel-anthony-j-celebrezze-jr-attorney-general-v , 766 F.2d 228 ( 1985 )

Wyoming Outdoor Council v. United States Forest Service , 165 F.3d 43 ( 1999 )

Sabre, Inc. v. Department of Transportation , 429 F.3d 1113 ( 2005 )

Abbott Laboratories v. Gardner , 87 S. Ct. 1507 ( 1967 )

Jerome Stevens Pharmaceuticals, Inc. v. Food & Drug ... , 402 F.3d 1249 ( 2005 )

View All Authorities »